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‘Worst of Energy Crisis May Be Over,’ Says Dallas Fed Economist

Recent data show improvements in Texas economy, though risks to forecast remain

DALLAS—Recent data suggest Texas may have weathered the worst of the oil bust, said Federal Reserve Bank of Dallas economist Pia Orrenius in the latest Texas Economic Update video.

“We’ve been very encouraged by the recent data we’re seeing for the state of Texas,” Orrenius said. “Whether it’s employment growth or the Texas Business Outlook Surveys, they’ve both improved significantly in recent months and are far better than they were earlier in the year. We’ve been encouraged by this because it suggests that the worst of the energy crisis may be over.”

Texas employment picked up over the summer. Texas jobs increased an annualized 3.2 percent in July and 2.6 percent in August—outpacing the nation. The gains were broad based across industry sectors.

“We saw increased job growth in the service sector, we saw a decline in the pace of losses in the goods-producing sector, and most remarkably, we saw an increase in oil and gas employment in August that we hadn’t seen since 2014,” Orrenius said.

Forward-looking measures also showed improvement. The Texas Manufacturing Outlook Survey production index increased to 4.5 in August, and then jumped even further to 16.7 in September. The Texas Service Sector Outlook Survey also continued to reflect expansion.

With oil prices now hovering in the $40 to $50 range, even the Texas energy sector has shown some signs of improvement. The rig count reached 244 for the week ending Sept. 16—up from its May low of 173. In a further sign of strength, Houston, which has been hard hit by the bust, saw employment gains in August.

The Dallas Fed’s Texas Employment Forecast calls for 1.2 percent growth in 2016, implying job gains in the second half of the year will be around 2.3 percent. Nevertheless, some risks to the forecast remain, according to Orrenius. These include the possibility of sharply lower oil prices, a stronger dollar—which negatively affects the state’s exports and manufacturing—and decelerating global or U.S. growth.

More data on the Texas economy can be found in the most recent Regional Economic Update. Orrenius is a vice president and senior economist at the Dallas Fed.